Petrol prices are falling, but “not enough” says RAC

Most parts of the UK now seem to be enjoying the relief of slightly lower prices for petrol and diesel. But the RAC says prices are still “too high” despite an average reduction of about 3p per litre last month.

According to RAC data, the price of oil fell by 14.5% to $51.52 per barrel (27 Dec). The breakdown provider says that this should have resulted in “considerably lower” prices at the pump.

If retailers pass on the full reduction in wholesale prices for petrol and diesel, the RAC estimates that unleaded should fall by 8p per litre to 113p over the next fortnight. Diesel should drop by 10p per litre to 120p.

Supermarkets are charging more

Petrol price cuts are usually led by the big supermarkets. But this time it’s different, says the RAC.

It seems that only one of the big four supermarkets — Asda — has cut its pump prices to reflect lower wholesale prices. The other three supermarkets have kept prices higher, increasing the profit they make on each litre of fuel.

RAC fuel spokesman Simon Williams says that this is a new situation for the UK:

“Normally, the other three supermarkets are 1p to 1.5p more expensive on unleaded, but our data shows that since October they have abandoned this strategy in favour of pricing 2.5p to 4p higher for a litre of petrol. The decision by all supermarkets to take more profit on a litre has led to every driver having to pay more to fill up than they should have to. This is because the UK average is negatively affected as other retailers are not being forced through competition to lower their prices.

Mr Williams says this change is especially important because supermarkets sell 45% of fuel in the UK, despite only operating 18% of the country’s forecourts.

(Un)fair play?

It’s worth pointing out that companies are allowed to make a profit on fuel. There’s no reason why the big supermarkets can’t charge more if they want to. If other retailers can sell cheaper, then they’ll get more business.

Unfortunately, the reality is that very few forecourt operators can afford to undercut supermarkets. So if supermarket prices are higher, everyone else’s prices will be too.

For what it’s worth, I’ve noticed that some other supermarkets are still matching Asda prices when they are very closely located. So there is still some competition between the big retailers.

Will prices keep falling?

RAC data suggests that despite the supermarkets new approach to pricing, the price of petrol and diesel is “very likely to come down” over the next couple of weeks.

The UK average prices at the time of writing are 120.7p for unleaded and 129.94p per litre for diesel.

That’s reflective of pricing in the town where I live, but I know fuel is much cheaper in areas where there’s an Asda nearby.